What is escrow?

An arrangement in which a third party holds funds until both sides of a trade have met their obligations.

Escrow is the core safeguard on p2p trading platforms, where the crypto is held while the buyer sends payment by bank transfer or cash. The protection is only as good as the platform running it. It solves one specific problem: on a peer-to-peer trade someone has to move first, and without escrow that person carries all the risk.

The misreading to avoid is thinking escrow protects your money. It protects the crypto. Your bank payment leaves your account and is outside the platform's reach entirely, which is why the fraud in this market almost always targets the fiat leg rather than the coins.

How it works

The sequence on a typical peer-to-peer marketplace runs like this:

1. A seller advertises an amount and a payment method, and the platform moves that crypto out of the seller's balance into escrow when a trade opens.
2. You send government currency directly to the seller by bank transfer, an instant payment scheme, or cash.
3. You mark the payment sent, which starts a timer and locks the trade.
4. The seller confirms receipt and the platform releases the crypto to you.
5. If the seller does not confirm, you open a dispute and submit evidence of payment, and the platform decides who gets the escrowed funds.

Two other forms exist. On chain, a hashed timelock contract or a multisig arrangement can hold funds without a company, releasing them when a condition is met or returning them after a deadline; see htlc. In institutional dealing, an otc desk or a bank may hold both legs and settle simultaneously.

The platform is the referee in the custodial version, and that is where the model's limits show. It can see the blockchain side perfectly and cannot see your bank account at all, so disputes turn on documents you provide.

Example

Illustrative trade. You agree to buy $500 of an asset at a 2% premium to the market rate, so you pay $510 and the platform escrows the coins immediately. You send the bank transfer and upload the receipt. The seller confirms within the window and the coins are released. Had the seller gone quiet, the dispute would be decided on your receipt against the seller's bank records, and the escrowed coins are the only thing the platform can award.

Why it matters when you buy

Peer-to-peer with escrow is the common route in places where exchanges cannot connect to local banking, and it costs more than a listed venue while carrying different risks. If a regulated exchange serves your country, it is usually the simpler path. Check what is available where you live at the available-in pages and read the local summary at the jurisdiction pages.

Related terms

p2p trading — where escrow is standard, htlc — the trustless on-chain version, multisig — shared control of held funds, chargeback — the reversal risk on the fiat leg, otc desk — escrow in large private trades, counterparty risk — what escrow reduces but never removes.

Questions

Who holds my money during a peer-to-peer trade?

Nobody holds your money. The platform holds the seller's crypto, and your currency goes straight to the seller's bank account. That asymmetry is the whole risk profile of the arrangement.

What happens if the seller refuses to release?

You open a dispute and the platform adjudicates from the evidence, typically a bank receipt against the seller's account records. Escrow is what makes that decision enforceable, because the platform still holds the coins.

Is escrow the same as custody?

No. Custody is holding assets on your behalf as a service; escrow is holding them temporarily against a specific trade's conditions. See custodial for the ongoing arrangement.